New Star to put millions in property firms

Embattled fund management group New Star is planning to make a multi-million pound investment in the shares of bombed-out property companies.

Investing: New Star boss John Duffield

The move, sanctioned by boss John Duffield, follows the sale late last week of the biggest property holding in its £1.5bn UK Property fund, the London headquarters of Commerzbank.

In 2000, Duffield described the German bank's executives as 'Nazis' after falling out with them over the purchase of investment house Jupiter, which he headed.

The property, 60 Gracechurch Street, has been sold for £127.5m to private equity bank Evans Randall, 14 months after New Star acquired it for £146m. The sale, after taking into account rent, crystallises overall losses of just over 6%.

Half of the sale proceeds are expected to be invested this week in leading property companies, including British Land, Land Securities and Hammerson.

New Star maintains that the offloading of the fund's prime asset represents a 'strategic' rather than a distressed sale and that it already had plenty of cash available to meet any future surge in investor withdrawals from its fund.

Shrinkage in the value of the fund's portfolio of 64 properties over the past six months, caused by plunging commercial property prices, had resulted in the building representing a disproportionate part of the fund's assets - a development that manager Roger Dossett found increasingly uncomfortable.

Last summer the fund topped £2bn, but over the past year its price has slipped nearly 20%.

Though Dossett believes that commercial property values are close to their bottom, he feels that investing in property companies makes sounder short-term sense than putting money back into property direct.

This is because property shares stand at an average 40% discount to their underlying asset values.

New Star is not the only investment house to identify value in property shares. At the beginning of the year, Fidelity's Anthony Bolton said that the sell-off of listed property companies looked 'overdone'.